Govt sticks to guns on fuel prices

The Jakarta Post, Jakarta

Despite recommendations from some economists and businessmen that fuel prices should again be hiked to prevent the ballooning fuel subsidy payments from undermining the economy, the government is yet to consider such an option, according to the finance minister.

However, Minister of Finance Jusuf Anwar admitted that the fuel problem was already creating a fiscal dilemma, forcing the government to consider another revision of this year's fuel subsidy, as well as formulating a more appropriate fuel subsidy scheme in the future.

Jusuf said an upward revision within the budget assumption for the fuel subsidy expenditure was highly probable, as the government had already spent some Rp 46 trillion (US$4.7 billion) in fuel subsidy payments to the state oil company -- more than half of its full-year allocation.

"If oil prices stay at current levels around $60 a barrel, then the remaining allocation might only be enough for another three and a half months, while we still have another six months ahead of us," said Jusuf on Thursday.

This year's state budget allocates Rp 76.5 trillion to pay for the fuel subsidy, based on an average annual oil price of US$45 a barrel and a rupiah exchange rate of Rp 9,300 per U.S. dollar.

The government may submit the final budget revision right after it submits its first semester budget report to the House, scheduled for August, Jusuf added.

A recent surge of oil prices to above $60 a barrel, a slumping of the rupiah to Rp 9,800, and the country's enormous 59.6 million kiloliters of fuel consumption -- predicted to grow by 10 percent, could push the fuel subsidy payment this year to over Rp 120 trillion.

The situation forced the government to launch a public energy conservation movement earlier this week, although many have criticized it as ineffective, calling instead for the government to reconsider its fuel subsidy policy and hike fuel prices again.

Adding to the chorus of calls for domestic fuel price hikes -- spearheaded by the Indonesian Chambers of Commerce and Industry (Kadin) -- was Hadi Soesastro, executive director of the Centre for Strategic and International Studies (CSIS).

"The soaring oil prices actually reflect the real condition of the world, and it is natural that most countries have time lags in adjusting with the condition," he explained.

"But it is very difficult for us to have even a slight adjustment at all, because we have a huge price gap between the domestic and international price."

Since the price gap was so great, Hadi said it would be adequate at the moment to raise fuel prices gradually toward a level that reflected at least 50 percent of the international oil price.

"Politically, it will be difficult for the government, but it's a must. The government has to come up with a way to convince the people about the urgency in hiking the price of gasoline and diesel, at the same time preparing another low-income assistance fund in the areas of health and education to mitigate the price increase impact on that group of people," he said, adding that the best way to put downward pressure on fuel consumption was by making it more expensive.

Jusuf said he understood such views, but was not yet considering fuel price hikes. Instead the government was attempting to cover the fuel subsidy by an increase of state revenues and energy conservation efforts.

Similarly, head of the finance ministry's economic, financial and international collaboration studies agency, Anggito Abimanyu, downplayed the possibility of a rising budget deficit due to the oil fiasco.

"We will stick to our deficit targets at below 1 percent this year. Although there will be an additional fund to cover the excess fuel subsidy costs, state revenues will still be sufficient to accommodate that," Anggito said after a meeting with Vice President Jusuf Kalla.

Anggito said the state budget still had a net surplus in this year's first semester as it spent less money for capital and other maintenance spending. Anggito refused to disclose the amount of the surplus.